ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 30, 2005
(all tabular amounts in thousands except per share amounts and percentages)
Note 1
Basis of Presentation
In the opinion of management, the information furnished in the accompanying condensed consolidated
financial statements reflects all normal recurring adjustments that are necessary to fairly state
the results for these interim periods and should be read in conjunction with the Companys Annual
Report on Form 10-K for the fiscal year ended October 30, 2004 and related notes. The results of
operations for the interim periods shown in this report are not necessarily indicative of the
results that may be expected for the fiscal year ending October 29, 2005 or any future period.
The Company has a 52-53 week fiscal year that ends on the Saturday closest to the last day in
October. Fiscal 2005 and fiscal 2004 are 52-week fiscal years.
Certain amounts reported in previous years have been reclassified to conform to the fiscal 2005
presentation. Such reclassifications were immaterial.
Note 2
Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards (SFAS) 148 and SFAS 123, the Company
applies the accounting provisions of Accounting Principle Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations, with regard to the measurement of
compensation cost for options granted under the Companys equity compensation plans, consisting of
the 2001 Broad-Based Stock Option Plan, the 1998 Stock Option Plan, the Restated 1994 Director
Option Plan, the Restated 1988 Stock Option Plan, the 1992 Employee Stock Purchase Plan and the
1998 International Employee Stock Purchase Plan.
On March 29, 2005 the SEC released Staff Accounting Bulletin No. 107 Share-Based Payment, (SAB
107), which interpreted SFAS 123(R). Based on this regulatory guidance the company has reevaluated
the methods and assumptions used to estimate the value of employee stock options granted in fiscal
2005. Management believes that implied volatility more accurately measures expected volatility due
to the fact that it is generally reflective of both historical volatility and expectations of how
future volatility will differ from historical volatility. Management believes that estimations
of the value of employee stock options granted using implied volatility will result in the best
estimate of expected volatility. The fair value of the Companys stock-based awards to employees
was estimated using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
July 30, 2005 |
|
|
July 31, 2004 |
|
Expected term (in years) |
|
|
5.0 |
|
|
|
5.8 |
|
Risk free interest rate |
|
|
3.6 |
% |
|
|
3.5 |
% |
Expected stock price volatility |
|
|
27.4 |
% |
|
|
69.2 |
% |
Expected dividend yield |
|
|
0.7 |
% |
|
|
0.4 |
% |
7
Had expense been recognized using the fair value method described in SFAS 123, using the
Black-Scholes option-pricing model, the Company would have reported the following results of
operations:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
July 30, 2005 |
|
July 31, 2004 |
Net income, as reported |
|
$ |
121,404 |
|
|
$ |
169,050 |
|
Add: stock-based employee compensation expense included in reported
net income, net of related tax effects |
|
|
1,029 |
|
|
|
1,678 |
|
Deduct: total stock-based compensation expense determined
under the fair value based method for all awards, net of related tax effects |
|
|
(49,793 |
) |
|
|
(55,394 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
72,640 |
|
|
$ |
115,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
0.33 |
|
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic pro forma |
|
$ |
0.20 |
|
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted as reported |
|
$ |
0.32 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted pro forma |
|
$ |
0.19 |
|
|
$ |
0.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
July 30, 2005 |
|
July 31, 2004 |
Net income, as reported |
|
$ |
346,446 |
|
|
$ |
438,472 |
|
Add: stock-based employee compensation expense included in reported
net income, net of related tax effects |
|
|
3,033 |
|
|
|
4,464 |
|
Deduct: total stock-based compensation expense determined
under the fair value based method for all awards, net of related tax effects |
|
|
(136,434 |
) |
|
|
(158,204 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
213,045 |
|
|
$ |
284,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
0.93 |
|
|
$ |
1.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic pro forma |
|
$ |
0.57 |
|
|
$ |
0.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
as reported |
|
$ |
0.90 |
|
|
$ |
1.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted pro forma |
|
$ |
0.55 |
|
|
$ |
0.72 |
|
|
|
|
|
|
|
|
|
|
8
Note 3
Comprehensive Income
Components of comprehensive income include net income and certain transactions that have generally
been reported in the consolidated statement of shareholders equity and consist of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
July 30, 2005 |
|
July 31, 2004 |
Net income |
|
$ |
121,404 |
|
|
$ |
169,050 |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(1,549 |
) |
|
|
(188 |
) |
|
|
|
|
|
|
|
|
|
Unrealized holding losses (net of taxes of $783 and $958, respectively)
on securities classified as Short-term Investments |
|
|
(1,456 |
) |
|
|
(1,779 |
) |
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) (net of taxes of $0
and $667, respectively) on securities classified
as Other Investments |
|
|
2 |
|
|
|
(1,237 |
) |
|
|
|
|
|
|
|
|
|
Change in unrealized losses on derivative instruments
designated as cash flow hedges |
|
|
(7,652 |
) |
|
|
(2,713 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
(10,655 |
) |
|
|
(5,917 |
) |
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
110,749 |
|
|
$ |
163,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
July 30, 2005 |
|
July 31, 2004 |
Net income |
|
$ |
346,446 |
|
|
$ |
438,472 |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(886 |
) |
|
|
31 |
|
|
|
|
|
|
|
|
|
|
Unrealized holding losses (net of taxes of $5,913 and $4,252, respectively)
on securities classified as Short-term Investments |
|
|
(10,983 |
) |
|
|
(7,895 |
) |
|
|
|
|
|
|
|
|
|
Change in unrealized (losses) gains on securities
classified as Other Investments: |
|
|
|
|
|
|
|
|
Unrealized holding (losses) gains (net of taxes of $295
and $528, respectively) on securities classified
as Other Investments |
|
|
(547 |
) |
|
|
981 |
|
Less: reclassification adjustment for loss included
in net income |
|
|
|
|
|
|
1,090 |
|
|
|
|
|
|
|
|
|
|
Net unrealized holding (losses) gains on securities classified
as Other Investments |
|
|
(547 |
) |
|
|
2,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized losses on derivative instruments
designated as cash flow hedges |
|
|
(8,736 |
) |
|
|
(2,994 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
(21,152 |
) |
|
|
(8,787 |
) |
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
325,294 |
|
|
$ |
429,685 |
|
|
|
|
|
|
|
|
|
|
9
The components of accumulated other comprehensive (loss) income at July 30, 2005 and October 30,
2004 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
July 30, 2005 |
|
October 30, 2004 |
Unrealized (losses) gains on available-for-sale securities |
|
$ |
(11,441 |
) |
|
$ |
89 |
|
Unrealized (losses) gains on derivative instruments |
|
|
(6,641 |
) |
|
|
2,095 |
|
Minimum pension liability adjustment |
|
|
(3,606 |
) |
|
|
(3,606 |
) |
Foreign currency translation adjustment |
|
|
4,285 |
|
|
|
5,171 |
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive (loss) income |
|
$ |
(17,403 |
) |
|
$ |
3,749 |
|
|
|
|
|
|
|
|
|
|
Note 4
Short-term investments
The Companys short-term investments are adjusted to fair market value at the end of each quarter.
Unrealized gains and losses, net of tax, on these securities are included in accumulated other
comprehensive (loss) income, which is a separate component of shareholders equity.
Note 5
Earnings Per Share
Basic earnings per share is computed using only the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed using the weighted average
number of common shares outstanding during the period, plus the dilutive effect of potential future
issuances of common stock relating to stock option programs and other potentially dilutive
securities. In calculating diluted earnings per share, the dilutive effect of stock options is
computed using the average market price for the respective period. Potential shares related to
certain of the Companys outstanding stock options were excluded because they were anti-dilutive.
Those potential shares related to the Companys outstanding stock options could be dilutive in the
future. The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
July 30, 2005 |
|
July 31, 2004 |
Basic: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
121,404 |
|
|
$ |
169,050 |
|
|
|
|
|
|
|
|
|
|
Weighted shares outstanding |
|
|
370,985 |
|
|
|
377,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
$ |
0.33 |
|
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
121,404 |
|
|
$ |
169,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted shares outstanding |
|
|
370,985 |
|
|
|
377,144 |
|
Assumed exercise of common stock equivalents |
|
|
11,845 |
|
|
|
17,059 |
|
|
|
|
|
|
|
|
|
|
Weighted average common and common equivalent shares |
|
|
382,830 |
|
|
|
394,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
$ |
0.32 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive common stock equivalents related to: |
|
|
|
|
|
|
|
|
Outstanding stock options |
|
|
37,998 |
|
|
|
14,171 |
|
10
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
July 30, 2005 |
|
July 31, 2004 |
Basic: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
346,446 |
|
|
$ |
438,472 |
|
|
|
|
|
|
|
|
|
|
Weighted shares outstanding |
|
|
372,407 |
|
|
|
374,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
$ |
0.93 |
|
|
$ |
1.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
346,446 |
|
|
$ |
438,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted shares outstanding |
|
|
372,407 |
|
|
|
374,687 |
|
Assumed exercise of common stock equivalents |
|
|
12,018 |
|
|
|
19,366 |
|
|
|
|
|
|
|
|
|
|
Weighted average common and common equivalent shares |
|
|
384,425 |
|
|
|
394,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
$ |
0.90 |
|
|
$ |
1.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive common stock equivalents related to: |
|
|
|
|
|
|
|
|
Outstanding stock options |
|
|
45,037 |
|
|
|
5,621 |
|
Note 6
Segment Information
The Company operates and tracks its results in one reportable segment. The Company designs,
develops, manufactures and markets a broad range of integrated circuits. The Chief Executive
Officer has been identified as the Chief Operating Decision Maker as defined by Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information.
Note 7
New Accounting Standards
Accounting Changes and Error Corrections
In May 2005, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) SFAS No. 154, Accounting Changes and Error Corrections (SFAS 154)
which supersedes APB Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting
Changes in Interim Financial Statements. SFAS 154 provides guidance on the accounting for and
reporting of accounting changes and error corrections. It establishes, unless impracticable,
retrospective application as the required method for reporting a change in accounting principle in
the absence of explicit transition requirements specific to the newly adopted accounting principle.
The correction of an error in previously issued financial statements is not an accounting change.
However, the reporting of an error correction involves adjustments to previously issued financial
statements similar to those generally applicable to reporting an accounting change retroactively.
Therefore, the reporting of a correction of an error by restating previously issued financial
statements is also addressed by this Statement. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not
expect the adoption of SFAS 154 to have a material impact on its consolidated results of operations
and financial condition.
11
Asset Retirements
In March 2005, the FASB issued FASB Interpretation No. 47 (FIN 47), Accounting for Conditional
Asset Retirement Obligations an interpretation of FASB Statement No. 143. FIN 47 clarifies that
the term conditional asset retirement obligation as used in SFAS No. 143, Accounting for Asset
Retirement Obligations, refers to a legal obligation to perform an asset retirement activity in
which the timing and (or) method of settlement are conditional on a future event that may or may
not be within the control of the entity. The obligation to perform the asset retirement activity
is unconditional even though uncertainty exists about the timing and (or) method of settlement.
Uncertainty about the timing and (or) method of settlement of a conditional asset retirement
obligation should be factored into the measurement of the liability when sufficient information
exists. FIN 47 also clarifies when an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the
end of fiscal years ending after December 15, 2005. The Company is currently analyzing FIN 47 and
believes the adoption of FIN 47 will not have a material impact on the Companys financial
condition, results of operations or liquidity.
Nonmonetary Assets
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets an amendment of
APB Opinion No. 29 (SFAS 153). SFAS 153 is based on the principle that exchanges of nonmonetary
assets should be measured based on the fair value of the assets exchanged. SFAS 153 eliminates the
exception for nonmonetary exchanges of similar productive assets and replaces it with a general
exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is
effective for nonmonetary asset exchanges in fiscal periods beginning after June 15, 2005. The
Company is currently evaluating the provisions of SFAS 153 and does not believe that its adoption
will have a material impact on the Companys financial condition, results of operations or
liquidity.
Inventory Costs
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of Accounting
Research Bulletin (ARB) No. 43, Chapter 4 (SFAS 151). SFAS 151 amends the guidance in ARB No. 43,
Chapter 4, Inventory Pricing, to clarify that abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage) should be recognized as current-period charges. In
addition, SFAS 151 requires that allocation of fixed production overhead to the costs of conversion
be based on the normal capacity of the production facilities. The provisions of SFAS 151 are
effective for fiscal years beginning after June 15, 2005. The Company is currently evaluating the
provisions of SFAS 151 and does not believe that its adoption will have a material impact on the
Companys financial condition, results of operations or liquidity.
Stock-Based Compensation
On December 16, 2004, the FASB issued SFAS 123 (revised 2004), Share-Based Payment, which is a
revision of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123(R)). SFAS 123(R)
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95,
Statement of Cash Flows. Generally, the approach in SFAS 123(R) is similar to the approach
described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income statement based on their
fair values at the date of grant. Pro forma disclosure is no longer an alternative.
SFAS 123(R) permits public companies to adopt its requirements using one of two methods. The
modified prospective method in which compensation cost is recognized beginning with the effective
date (a) based on the requirements of SFAS 123(R) for all share-based payments granted after the
effective date and (b) based on the requirements of SFAS 123 for all awards granted to employees
prior to the effective date of SFAS 123(R) that remain unvested on the effective date. The
modified retrospective method includes the requirements of the modified prospective method
described above, but also permits entities to restate their historical financial statements based
on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either
(a) all prior periods presented or (b) prior interim periods of the year of adoption. The Company
has yet to determine which method to use in adopting SFAS 123(R).
12
As permitted by SFAS 123, the Company currently accounts for share-based payments to employees
using APB Opinion No. 25s intrinsic value method and, as such, generally recognizes no
compensation cost for employee stock options. Accordingly, the adoption of SFAS 123(R)s fair value
method will have a significant impact on the Companys results of operations, although it will have
no impact on the Companys overall financial position. The Company is evaluating SFAS 123(R) and
has not yet determined the amount of stock option expense that will be incurred in future periods.
On April 14, 2005, the Securities and Exchange Commission announced the adoption of a new rule that
amends the compliance dates for SFAS 123(R). The new rule allows companies to implement SFAS
123(R) at the beginning of their next fiscal year, instead of the next reporting period, that
begins after June 15, 2005. The Company expects to adopt SFAS 123(R) beginning in fiscal year 2006
on October 30, 2005, its first fiscal quarter.
Note 8
Goodwill and Intangible Assets
In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the Company annually
evaluates goodwill for impairment, or earlier if indicators of potential impairment exist and
suggest that the carrying value of goodwill may not be recoverable. Because the Company has one
reporting segment under SFAS 142, the Company utilizes the entity-wide approach for assessing
goodwill for impairment and compares its market value to its net book value to determine if an
impairment exists. No impairment of goodwill resulted from the Companys most recent evaluation of
goodwill for impairment, which occurred in the fourth quarter of fiscal 2004. The Companys next
impairment assessment is scheduled for the fourth quarter of fiscal 2005.
Intangible assets, which continue to be amortized, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 30, 2005 |
|
October 30, 2004 |
|
|
Gross |
|
|
|
|
|
Gross |
|
|
|
|
Carrying |
|
Accumulated |
|
Carrying |
|
Accumulated |
|
|
Amount |
|
Amortization |
|
Amount |
|
Amortization |
Technology-based |
|
$ |
16,923 |
|
|
$ |
13,270 |
|
|
$ |
16,923 |
|
|
$ |
11,387 |
|
Tradename |
|
|
1,167 |
|
|
|
789 |
|
|
|
1,167 |
|
|
|
696 |
|
Other |
|
|
6,147 |
|
|
|
6,147 |
|
|
|
6,147 |
|
|
|
6,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
24,237 |
|
|
$ |
20,206 |
|
|
$ |
24,237 |
|
|
$ |
18,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets are amortized on a straight-line basis over their estimated useful lives, which
range from five to ten years. Amortization expense related to intangibles was $0.7 million for
each of the three month periods ended July 30, 2005 and July 31, 2004, respectively, and $2.0
million for each of the nine month periods ended July 30, 2005 and July 31, 2004, respectively.
The Company expects amortization expense for these intangible assets to be:
|
|
|
|
|
Fiscal |
|
Amortization |
Years |
|
Expense |
Remainder of 2005 |
|
$ |
328 |
|
2006 |
|
|
1,312 |
|
2007 |
|
|
1,312 |
|
2008 |
|
|
938 |
|
2009 |
|
|
141 |
|
13
Note 9
Pension Plans
The Company has various defined benefit pension and other retirement plans for certain non-U.S.
employees that are consistent with local statutory requirements and practices. The Companys
funding policy for its foreign defined benefit pension plans is consistent with the local
requirements of each country. The plans assets consist primarily of U.S. and non-U.S. equity
securities, bonds, property and cash.
Net periodic pension cost of non-U.S. plans is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
July 30, 2005 |
|
July 31, 2004 |
Service cost |
|
$ |
2,020 |
|
|
$ |
1,767 |
|
Interest cost |
|
|
1,586 |
|
|
|
1,414 |
|
Expected return on plan assets |
|
|
(1,776 |
) |
|
|
(1,618 |
) |
Amortization of prior service cost |
|
|
45 |
|
|
|
44 |
|
Amortization of transitional obligation or (asset) |
|
|
17 |
|
|
|
(10 |
) |
Recognized actuarial loss |
|
|
158 |
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
2,050 |
|
|
$ |
1,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
July 30, 2005 |
|
July 31, 2004 |
Service cost |
|
$ |
6,280 |
|
|
$ |
5,311 |
|
Interest cost |
|
|
4,944 |
|
|
|
4,250 |
|
Expected return on plan assets |
|
|
(5,540 |
) |
|
|
(4,868 |
) |
Amortization of prior service cost |
|
|
141 |
|
|
|
134 |
|
Amortization of transitional obligation or (asset) |
|
|
52 |
|
|
|
(26 |
) |
Recognized actuarial loss |
|
|
490 |
|
|
|
260 |
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
6,367 |
|
|
$ |
5,061 |
|
|
|
|
|
|
|
|
|
|
Contributions of $1.6 million and $5.2 million have been made by the Company during the three and
nine months ended July 30, 2005, respectively. The Company presently anticipates contributing an
additional $2.2 million to fund its defined benefit pension plans in fiscal year 2005 for a total
of $7.4 million.
Note
10 Product Warranties
The Company generally offers a 12-month warranty for its products. The Companys warranty policy
provides for replacement of the defective product. Specific accruals are recorded for known
product warranty issues. Product warranty expenses were not material during the three and nine
month periods ended July 30, 2005 and July 31, 2004.
Note
11 Commitments and Contingencies
On
June 14, 2005, Biax Corporation filed its first amended complaint for patent infringement in the
United States District Court for the Eastern District of Texas against the Company and Intel
Corporation, alleging that the Company infringed three patents owned by Biax relating to parallel
processors. Prior to the filing of the first amended complaint, the Company was unaware of Biax or
this action. The first amended complaint seeks injunctive relief, unspecified damages, as well as
its costs, expenses and fees. On August 3, 2005, the Company filed an answer and counterclaimed
against Biax. In the counterclaim, the Company seeks rulings that the patents are not infringed,
are invalid and are unenforceable. The case has not yet entered the discovery phase. The Company
intends to vigorously defend against these allegations. The Company is unable at this time to
predict the outcome of this litigation.
On November 6, 2003, Enron Corporation commenced a proceeding in the United States Bankruptcy Court
for the Southern District of New York. On December 1, 2003, Enron filed an amended complaint to
add the Company as a defendant in such proceeding. The amended complaint alleges that transfers
made by Enron in satisfaction of obligations it had under commercial
14
paper are recoverable as preferential transfers and fraudulent transfers and are subject to
avoidance under the United States Bankruptcy Code. It is alleged that payments made in premature
satisfaction of obligations under commercial paper totaling approximately $20 million are
recoverable from J.P. Morgan Securities, Inc., Fleet Capital Markets, Fleet National Bank and/or
the Company. The Company sold $20 million of Enron commercial paper to Fleet and did not enter
into any direct transactions with Enron. The Company filed a motion to dismiss the adversary
proceeding. The motion to dismiss was denied by order dated June 30, 2005. The Company intends to
vigorously defend against these claims. Although the Company believes it has meritorious defenses
to the asserted claims, it is unable at this time to predict the outcome of this proceeding.
The Company is currently under routine audit by the United States Internal Revenue Service (the
IRS) for fiscal years 2001, 2002 and 2003. The audit has not been completed and the IRS has not
issued a report on its audit.
The SEC is conducting an investigation into the Companys granting of stock options from 1999 to
2003 to officers and directors. The Company believes that the SEC is also investigating the
granting of stock options at other companies. Each year, the Company grants stock options to a
broad base of employees (including officers and directors) and in some years those grants have
occurred shortly before Analogs issuance of favorable financial results. The SEC has requested
information regarding Analogs stock option grants, and the Company is cooperating with the SEC.
The Company is unable to predict the outcome of this matter.
From time to time as a normal incidence of the nature of the Companys business, various claims,
charges and litigation are asserted or commenced against the Company arising from, or related to,
contractual matters, patents, trademarks, personal injury, environmental matters, product
liability, insurance coverage and personnel and employment disputes. As to such claims and
litigation the Company can give no assurance that it will prevail.
The Company does not believe that any of these matters above will have a material adverse effect on
the Companys consolidated results of operations or financial position, although an adverse outcome
of any of these matters is possible and could have a material adverse effect on the Companys
consolidated results of operations or cash flows in the quarter or annual period in which one or
more of these matters are resolved.
Note
12 Common Stock Repurchase
On August 12, 2004, the Companys Board of Directors approved the repurchase of up to an aggregate
of $500 million of common stock. On May 11, 2005, the Companys Board of Directors amended the
stock repurchase program by increasing the total amount of the Companys common stock the Company
can repurchase from $500 million to $1 billion of common stock. Under the repurchase program, the
Company may repurchase outstanding shares of its common stock from time to time in the open market
and through privately negotiated transactions. Unless terminated earlier by resolution of the
Companys Board of Directors, the repurchase program will expire when the Company has repurchased
all shares authorized under the program. The Company made no purchases of shares of its common
stock during the third quarter of fiscal 2005. The Company repurchased a total of 7.9 million
shares for approximately $285 million during the first nine months of fiscal 2005. As of July 30,
2005, the Company had purchased 11.8 million shares of its common stock for approximately $421.8
million under this program. The repurchased shares are held as authorized but unissued shares of
common stock.
Note
13 Related Party Transactions
Certain of the Companys directors are affiliated with companies that sell products to the Company.
One of the Companys directors, who has been a director since 1988, became a director of Taiwan
Semiconductor Manufacturing Company, or TSMC, in fiscal 2002 and currently serves as a director.
The Company purchased approximately $52 million and $100 million of products from TSMC during the
three month periods ended July 30, 2005 and July 31, 2004, respectively, and $174 million and $259
million during the nine month periods ended July 30, 2005 and July 31, 2004, respectively.
Approximately $25 million and $15 million was payable to TSMC as of July 30, 2005 and October 30,
2004, respectively. The Company anticipates that it will make significant purchases from TSMC in
the remaining quarter of fiscal year 2005.
Note
14 Income Taxes
On October 22, 2004, the American Jobs Creation Act of 2004 (AJCA) was signed into law. The AJCA
created a temporary incentive for US multinational corporations to repatriate accumulated income
abroad by providing an 85% dividends received deduction for certain dividends from controlled
foreign corporations. In December 2004, the FASB issued Financial Staff
15
Position (FSP) No. FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004 (FSP 109-2). FSP 109-2 is
effective immediately and provides accounting and disclosure guidance for the repatriation
provision. FSP 109-2 allows companies additional time to evaluate the effects of the law on its
unremitted earnings for the purpose of applying the indefinite reversal criteria under APB 23,
Accounting for Income Taxes-Special Areas, and requires explanatory disclosures from companies that
have not yet completed the evaluation. On May 9, 2005, the Treasury issued Notice 2005-38, which
clarified some of the new rules. The Company is currently evaluating the effects of the
repatriation provision and their impact on the consolidated financial statements. The minimum
amount of dividend distribution of foreign earnings that could potentially be subject to the
provisions of the AJCA would be $0 and the maximum would be $1,055 million, which is the amount
reported as indefinitely reinvested earnings on the Companys 2002 Annual Report on Form 10-K. The
range of income tax expense on these amounts would be $0 to approximately $50 million.
Note
15 Subsequent Events
On August 10, 2005, the Companys Board of Directors declared a cash dividend of $0.10 per
outstanding share of common stock. The dividend will be paid on September 14, 2005 to all
shareholders of record at the close of business on August 26, 2005.
16
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This information should be read in conjunction with the unaudited condensed consolidated financial
statements and related notes included in Item 1 of this Quarterly Report on Form 10-Q and the
audited consolidated financial statements and related notes and Managements Discussion and
Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form
10-K for the fiscal year ended October 30, 2004.
This Quarterly Report on Form 10-Q, including the section entitled Outlook, contains or
incorporates forward-looking statements within the meaning of section 27A of the Securities Act of
1933 and section 21E of the Securities Exchange Act of 1934. These forward-looking statements are
based on current expectations, estimates, forecasts and projections about the industry and markets
in which we operate and managements beliefs and assumptions. In addition, other written or oral
statements that constitute forward-looking statements may be made by or on our behalf. Words such
as expect, anticipate, intend, plan, believe, seek, estimate, variations of such
words and similar expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks, uncertainties and
assumptions that are difficult to predict. We have included important factors in the cautionary
statements below under the heading Factors That May Affect Future Results that we believe could
cause our actual results to differ materially from the forward-looking statements we make. We do
not intend to update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
Results of Operations
Overview
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
July 30, 2005 |
|
July 31, 2004 |
|
July 30, 2005 |
|
July 31, 2004 |
Net Sales |
|
$ |
582,416 |
|
|
$ |
717,793 |
|
|
$ |
1,766,678 |
|
|
$ |
2,001,676 |
|
Gross Margin % |
|
|
58.1 |
% |
|
|
60.0 |
% |
|
|
57.7 |
% |
|
|
58.8 |
% |
Diluted EPS |
|
$ |
0.32 |
|
|
$ |
0.43 |
|
|
$ |
0.90 |
|
|
$ |
1.11 |
|
Net Income |
|
$ |
121,404 |
|
|
$ |
169,050 |
|
|
$ |
346,446 |
|
|
$ |
438,472 |
|
Net Income as a % of Sales |
|
|
20.8 |
% |
|
|
23.6 |
% |
|
|
19.6 |
% |
|
|
21.9 |
% |
Sales
Net sales in the third quarter of fiscal 2005 declined by $135.4 million or 19% from the amount
recorded in the third quarter of fiscal 2004 and declined by $235.0 million or 12% in the nine
months ended July 30, 2005 from the nine months ended July 31, 2004. For both the three and nine
month periods, the year-to-year decreases in net sales were primarily the result of decreases in
orders for products used in communications applications due to continuing weakness in the wireless
handset end markets and to a lesser extent, decreases in revenue from products used in automatic
test equipment and computer applications.
Approximately 84% and 81% of our net sales were from analog products in the three and nine months
ended July 30, 2005, respectively, as compared to 79% for each of the comparable periods of fiscal
2004. Approximately 16% and 19% of our net sales were from digital signal processing, or DSP,
products in the three and nine months ended July 30, 2005, respectively, as compared to 21% for
each of the comparable periods of fiscal 2004. Our analog product sales were lower by 15% and 9% in
the three and nine months ended July 30, 2005, respectively, as compared to the same periods of
fiscal 2004. Our DSP product sales were lower by 35% and 20% for the three and nine month periods
ended July 30, 2005, respectively, from the comparable periods of fiscal 2004.
17
The percentage of sales by geographic region, based upon point of sale, for the three and nine
month periods ended July 30, 2005 and July 31, 2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
Region |
|
July 30, 2005 |
|
July 31, 2004 |
|
July 30, 2005 |
|
July 31, 2004 |
North America |
|
|
26 |
% |
|
|
25 |
% |
|
|
25 |
% |
|
|
24 |
% |
Europe |
|
|
22 |
% |
|
|
19 |
% |
|
|
23 |
% |
|
|
19 |
% |
Japan |
|
|
20 |
% |
|
|
19 |
% |
|
|
19 |
% |
|
|
20 |
% |
China |
|
|
10 |
% |
|
|
16 |
% |
|
|
11 |
% |
|
|
15 |
% |
Rest of Asia |
|
|
22 |
% |
|
|
21 |
% |
|
|
22 |
% |
|
|
22 |
% |
Net sales in dollars in the third quarter of fiscal 2005 compared to the third quarter of fiscal
2004 decreased in all geographic regions. The decrease in net sales in dollars for the nine months
ended July 30, 2005 as compared to the same period of fiscal 2004 related to a decrease in sales in
China, Japan, Rest of Asia and North America, partially offset by an increase in net sales in
Europe.
Gross Margin
Gross margin declined in the third quarter of fiscal 2005 to 58.1% of net sales, down 190 basis
points from the third quarter of fiscal 2004, when gross margin was 60.0% of net sales. For the
first nine months of fiscal 2005, gross margin declined to 57.7% of net sales from 58.8% of net
sales for the first nine months of fiscal 2004. For both the three and nine month periods ended
July 30, 2005, the decline in gross margin was primarily the result of the effect of fixed costs
allocated across lower levels of production and the mix of products we sold during those periods in
fiscal 2005 as compared to fiscal 2004.
Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
July 30, 2005 |
|
July 31, 2004 |
|
July 30, 2005 |
|
July 31, 2004 |
R&D Expenses |
|
$ |
119,217 |
|
|
$ |
133,536 |
|
|
$ |
373,393 |
|
|
$ |
382,644 |
|
R&D Expenses as a % of Net Sales |
|
|
20.5 |
% |
|
|
18.6 |
% |
|
|
21.1 |
% |
|
|
19.1 |
% |
Research and development, or R&D, expenses decreased $14.3 million or 11% in the third quarter of
fiscal 2005 as compared to the third quarter of fiscal 2004. R&D expenses decreased $9.3 million
or 2% in the first nine months of fiscal 2005 from the amount recorded in the comparable period of
fiscal 2004. The decrease in R&D expenses for the three and nine month periods ended July 30, 2005
as compared to the same periods in fiscal year 2004 was the result of a tight control of expenses
along with lower employee bonus expenses and licensing fees, partially offset by an increase in
salary expenses. R&D expense as a percentage of net sales will fluctuate from quarter to quarter
depending on the amount of net sales and the success of new product development efforts, which we
view as critical to our future growth. At any point in time we have hundreds of R&D projects
underway, and we believe that none of these projects is material on an individual basis. We expect
to continue the development of innovative technologies and processes for new products, and we
believe that a continued commitment to R&D is essential in order to maintain product leadership
with our existing products and to provide innovative new product offerings. Therefore, we expect
to continue to make significant R&D investments in the future.
18
Selling, Marketing, General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
July 30, 2005 |
|
July 31, 2004 |
|
July 30, 2005 |
|
July 31, 2004 |
SMG&A Expenses |
|
$ |
84,407 |
|
|
$ |
89,162 |
|
|
$ |
253,561 |
|
|
$ |
253,682 |
|
SMG&A Expenses as a
% of Net Sales |
|
|
14.5 |
% |
|
|
12.4 |
% |
|
|
14.4 |
% |
|
|
12.7 |
% |
Selling, marketing, general and administrative, or SMG&A, expenses decreased $4.8 million or 5% in
the third quarter of fiscal 2005 as compared to the third quarter of fiscal 2004. The decrease in
SMG&A expenses in dollars in the three month period ended July 30, 2005 compared to the same period
in the prior year was primarily the result of a tight control of expenses along with lower employee
bonus expenses, partially offset by increased salary expenses. SMG&A expenses were relatively flat
in the first nine months of fiscal 2005 from the amount recorded in the comparable period of fiscal
2004. This was the result of a decrease in expenses as a result of a tight control of expenses
offset by increased salary expenses. These factors, combined with the decrease in net sales, were
the reason for the increase in SMG&A as a percentage of sales in the three and nine month periods
ended July 30, 2005 as compared to the same periods in the prior year.
Nonoperating Income
Interest income was $19.2 million and $50.4 million in the three and nine months ended July 30,
2005 compared to $9.6 million and $23.3 million in the same periods in the prior year. The
increase in interest income was primarily attributable to higher interest rates during fiscal 2005
as compared to the comparable periods of fiscal 2004.
Provision for Income Taxes
Our effective tax rate reflects the applicable tax rate in effect in the various tax jurisdictions
around the world where our income is earned. Our effective income tax rate was 21.8% for the nine
months ended July 30, 2005 and 21.9% for the nine months ended July 31, 2004.
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
July 30, 2005 |
|
July 31, 2004 |
|
July 30, 2005 |
|
July 31, 2004 |
Net Income |
|
$ |
121,404 |
|
|
$ |
169,050 |
|
|
$ |
346,446 |
|
|
$ |
438,472 |
|
Net Income as a % of Net Sales |
|
|
20.8 |
% |
|
|
23.6 |
% |
|
|
19.6 |
% |
|
|
21.9 |
% |
Diluted EPS |
|
$ |
0.32 |
|
|
$ |
0.43 |
|
|
$ |
0.90 |
|
|
$ |
1.11 |
|
Net income in the third quarter of fiscal 2005 was lower than the third quarter of fiscal 2004 by
approximately $47.6 million primarily as the result of the 19% decline in net sales between these
periods. For the nine month period ended July 30, 2005, net income was lower than the same period
in the prior year by approximately $92.0 million primarily as the result of the 12% decline in net
sales between these periods.
Outlook
While it is difficult to forecast revenue in the semiconductor industry, we are currently planning
for revenue in the fourth quarter of fiscal 2005 to be between 1% and 4% above the level recorded
in the third quarter of fiscal 2005. If revenue is within this anticipated range, and depending on
the mix of products sold, we expect gross margin as a percentage of net sales to slightly improve
in the last quarter of fiscal 2005. We are planning for operating expenses in the fourth quarter
of fiscal 2005 to be slightly higher than the level recorded in the third quarter of fiscal 2005.
Based on these assumptions, our plan is for diluted EPS to be in the range of $0.32 to $0.34 for
the fourth quarter of fiscal 2005.
19
Related Party Transactions
One of our directors, who has been a director since 1988, became a director of Taiwan Semiconductor
Manufacturing Company, or TSMC, in fiscal 2002 and currently serves as a director. We purchased
approximately $52 million and $100 million of products from TSMC during the three month periods
ended July 30, 2005 and July 31, 2004, respectively, and $174 million and $259 million during the
nine month periods ended July 30, 2005 and July 31, 2004, respectively. Approximately $25 million
and $15 million was payable to TSMC as of July 30, 2005 and October 30, 2004. We anticipate that we
will make significant purchases from TSMC in the remaining quarter of fiscal year 2005.
Liquidity and Capital Resources
At July 30, 2005, cash, cash equivalents and short-term investments totaled $2,784 million, a
increase of $98.9 million from the fourth quarter of fiscal 2004. The primary sources of funds for
the first nine months of fiscal 2005 were net cash generated from operating activities of $472.4
million and proceeds of $72.4 million from our various employee stock plans. The principal uses of
funds for the first nine months of fiscal 2005 were the repurchase of $284.7 million of our common
stock, dividend payments of $81.9 million, and capital expenditures of $64.4 million.
Accounts receivable of $296.1 million at the end of the third quarter of fiscal 2005 decreased
$33.4 million, or 10.1%, from $329.5 million at the end of the fourth quarter of fiscal 2004. The
decrease in accounts receivable in the third quarter of fiscal 2005 from the fourth quarter of
fiscal 2004 was primarily the result of the decrease in net sales. Days sales outstanding at July
30, 2005 was 46, which was down from the 48 days at October 30, 2004.
Inventories decreased by $2.2 million, or 0.6%, from $345.9 million at the end of fiscal 2004, to
$343.7 million at the end of the third quarter of fiscal 2005. Days cost of sales in inventory was
128 days at July 30, 2005 compared to 123 days at October 30, 2004.
Current liabilities decreased to $542.3 million at the end of the third quarter of fiscal 2005, a
decrease of $24.7 million, or 4.4%, from the $567.0 million at the end of fiscal 2004. The
decrease in current liabilities was primarily the result of a $30.9 million decrease in deferred
income on shipments to distributors as a result of a reduction in inventory in the distribution
channel, a $16.8 million decrease in accrued liabilities primarily as the result of a decrease in
employee bonus accrual, and a $13.1 million decrease in accounts payable caused principally by a
decrease in manufacturing spending and a decrease in capital expenditures. These decreases were
partially offset by a $36.1 million increase to income taxes payable.
Net additions to property, plant and equipment were $64.4 million in the first nine months of
fiscal 2005 and were funded with a combination of cash on hand and cash generated from operations.
Fiscal 2005 capital expenditures are expected to be approximately $90 million to $100 million.
On August 10, 2005, our Board of Directors declared a cash dividend of $0.10 per outstanding share
of our common stock. The dividend is payable on September 14, 2005 to shareholders of record on
August 26, 2005 and is expected to be approximately $37 million. The payment of future dividends,
if any, will be based on our future financial performance.
During the first nine months of fiscal 2005, we distributed $64 million from our amended and
restated deferred compensation plan (the Deferred Compensation Plan) as a result of participant
terminations or at the direction of the participants. This amount represented compensation and/or
stock option gains previously deferred by those participants pursuant to the terms of our Deferred
Compensation Plan. As a result of the adoption of certain provisions of the American Jobs Creation
Act, participants have the opportunity until December 31, 2005, to elect to withdraw amounts
previously deferred. As a result of withdrawals pursuant to elections under these provisions or
upon termination, participants have withdrawn approximately $58 million of deferred compensation
which was previously reflected in the More than 5 Years column of the contractual obligations
table contained in the section entitled Managements Discussion and Analysis of Financial
Condition and Results of Operations of the Analog Devices Annual Report on Form 10-K for the
fiscal year ended October 30, 2004.
At July 30, 2005, our principal source of liquidity was $2,784 million of cash and cash equivalents
and short-term investments. We believe that our existing sources of liquidity and cash expected to
be generated from future operations, together with anticipated available long-term financing, will
be sufficient to fund operations, capital expenditures, research and development efforts, dividend
payments and purchases of stock under our stock repurchase program for at least the next twelve
months and thereafter for the foreseeable future.
20
New Accounting Pronouncements
Accounting Changes and Error Corrections
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections (SFAS 154)
which supersedes APB Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting
Changes in Interim Financial Statements. SFAS 154 provides guidance on the accounting for and
reporting of accounting changes and error corrections. It establishes, unless impracticable,
retrospective application as the required method for reporting a change in accounting principle in
the absence of explicit transition requirements specific to the newly adopted accounting principle.
The correction of an error in previously issued financial statements is not an accounting change.
However, the reporting of an error correction involves adjustments to previously issued financial
statements similar to those generally applicable to reporting an accounting change retroactively.
Therefore, the reporting of a correction of an error by restating previously issued financial
statements is also addressed by this Statement. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005. We do not expect the
adoption of SFAS 154 to have a material impact on our consolidated results of operations and
financial condition.
Asset Retirements
In March 2005, the FASB issued FASB Interpretation No. 47 (FIN 47), Accounting for Conditional
Asset Retirement Obligations an interpretation of FASB Statement No. 143. FIN 47 clarifies that
the term conditional asset retirement obligation as used in FASB Statement No. 143, Accounting for
Asset Retirement Obligations, refers to a legal obligation to perform an asset retirement activity
in which the timing and (or) method of settlement are conditional on a future event that may or may
not be within the control of the entity. The obligation to perform the asset retirement activity
is unconditional even though uncertainty exists about the timing and (or) method of settlement.
Uncertainty about the timing and (or) method of settlement of a conditional asset retirement
obligation should be factored into the measurement of the liability when sufficient information
exists. FIN 47 also clarifies when an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the
end of fiscal years ending after December 15, 2005. We are currently analyzing FIN 47 and believe
the adoption of FIN 47 will not have a material impact on our financial condition, results of
operations or liquidity.
Nonmonetary Assets
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets an amendment of
APB Opinion No. 29, (SFAS 153). SFAS 153 is based on the principle that exchanges of nonmonetary
assets should be measured based on the fair value of the assets exchanged. SFAS 153 eliminates the
exception for nonmonetary exchanges of similar productive assets and replaces it with a general
exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is
effective for nonmonetary asset exchanges in fiscal periods beginning after June 15, 2005. We are
currently evaluating the provisions of SFAS 153 and do not believe that its adoption will have a
material impact on our financial condition, results of operations or liquidity.
Inventory Costs
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of Accounting
Research Bulletin (ARB) No. 43, Chapter 4 (SFAS 151). SFAS 151 amends the guidance in ARB No 43,
Chapter 4, Inventory Pricing, to clarify that abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage) should be recognized as current-period charges. In
addition, SFAS 151 requires that allocation of fixed production overhead to the costs of conversion
be based on the normal capacity of the production facilities. The provisions of SFAS 151 are
effective for fiscal years beginning after June 15, 2005. We are currently evaluating the
provisions of SFAS 151 and do not believe that its adoption will have a material impact on our
financial condition, results of operations or liquidity.
21
Stock-Based Compensation
On December 16, 2004, the FASB issued SFAS 123 (revised 2004), Share-Based Payment, which is a
revision of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123(R)). SFAS 123(R)
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95,
Statement of Cash Flows. Generally, the approach in SFAS 123(R) is similar to the approach
described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income statement based on their
fair values at the date of grant. Pro forma disclosure is no longer an alternative.
SFAS 123(R) permits public companies to adopt its requirements using one of two methods. A
modified prospective method in which compensation cost is recognized beginning with the effective
date (a) based on the requirements of SFAS 123(R) for all share-based payments granted after the
effective date and (b) based on the requirements of SFAS 123 for all awards granted to employees
prior to the effective date of SFAS 123(R) that remain unvested on the effective date. A
modified retrospective method includes the requirements of the modified prospective method
described above, but also permits entities to restate their historical financial statements based
on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either
(a) all prior periods presented or (b) prior interim periods of the year of adoption. We have yet
to determine which method to use in adopting SFAS 123(R).
As permitted by SFAS 123, we currently account for share-based payments to employees using APB
Opinion No. 25s intrinsic value method and, as such, generally recognize no compensation cost for
employee stock options. Accordingly, the adoption of SFAS 123(R)s fair value method will have a
significant impact on our results of operations, although it will have no impact on our overall
financial position. We are evaluating SFAS 123(R) and have not yet determined the amount of stock
option expense that will be incurred in future periods.
On April 14, 2005, the Securities and Exchange Commission announced the adoption of a new rule that
amends the compliance dates for FASB SFAS 123(R). The new rule allows companies to implement SFAS
123(R) at the beginning of their next fiscal year, instead of the next reporting period, that
begins after June 15, 2005. We expect to adopt SFAS 123(R) beginning in fiscal year 2006 on
October 30, 2005, our first fiscal quarter.
Critical Accounting Policies and Estimates
Managements discussion and analysis of the financial condition and results of operations is based
upon the consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We
base our estimates and judgments on historical experience, knowledge of current conditions and
beliefs of what could occur in the future given available information. We consider the following
accounting policies to be both those most important to the portrayal of our financial condition and
those that require the most subjective judgment. If actual results differ significantly from
managements estimates and projections, there could be a material effect on our financial
statements. We also have other policies that we consider key accounting policies, such as our
policy for revenue recognition, including the deferral of revenue on sales to distributors until
the products are sold to the end user; however, the application of these policies does not require
us to make estimates or judgments that are difficult or subjective.
Inventory Valuation
Inventories are valued at the lower of cost (first-in, first-out method) or market. Because of the
cyclical nature of the semiconductor industry, changes in inventory levels, obsolescence of
technology, and product life cycles, we write down inventories to net realizable value. We employ a
variety of methodologies to determine the amount of inventory reserves necessary. While a portion
of the reserve is determined via reference to the age of inventory and lower of cost or market
calculations, an element of the reserve is subject to significant judgments made by us about future
demand for our inventory. If actual demand for our products is less than our estimates, additional
reserves for existing inventories may need to be recorded in future periods.
22
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts, when appropriate, for estimated losses resulting from
the inability of our customers to make required payments. If the financial condition of our
customers were to deteriorate, our actual losses may exceed our estimates, and additional
allowances would be required.
Long-Lived Assets
We review property, plant, and equipment for impairment whenever events or changes in circumstances
indicate that the carrying value of assets may not be recoverable. Recoverability of these assets
is measured by comparison of their carrying value to future undiscounted cash flows the assets are
expected to generate over their remaining economic life. If such assets are considered to be
impaired, the impairment to be recognized in earnings equals the amount by which the carrying value
of the assets exceeds their fair market value determined by either a quoted market price, if any,
or a value determined by utilizing a discounted cash flow technique. Although we have recognized no
material impairment adjustments related to our property, plant, and equipment during the past three
fiscal years, except those made in conjunction with restructuring actions, deterioration in our
business in the future could lead to such impairment adjustments in future periods. Evaluation of
impairment of long-lived assets requires estimates of future operating results that are used in the
preparation of the expected future undiscounted cash flow analyses. Actual future operating results
and the remaining economic lives of our long-lived assets could differ from the estimates used in
assessing the recoverability of these assets. These differences could result in impairment charges,
which could have a material adverse impact on our results of operations.
Goodwill
In accordance with Statement of Financial Accounting Standards No. 142, or FAS 142, Goodwill and
Other Intangible Assets, we annually assess goodwill for impairment, or earlier if indicators of
potential impairment exist and suggest that the carrying value of goodwill may not be recoverable.
Because we have one reporting segment under FAS 142, we utilize the entity-wide approach to assess
goodwill for impairment and compare our market value to our net book value to determine if an
impairment exists. These assessments may result in impairment losses that could have a material
adverse impact on our results of operations.
Accounting for Income Taxes
We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109,
or FAS 109, Accounting for Income Taxes, which requires that deferred tax assets and liabilities be
recognized using enacted tax rates for the effect of temporary differences between the book and tax
bases of recorded assets and liabilities. FAS 109 also requires that deferred tax assets be reduced
by a valuation allowance if it is more likely than not that some portion or all of the deferred tax
asset will not be realized. We evaluate the realizability of our deferred tax assets quarterly. At
July 30, 2005, we had gross deferred tax assets of $141 million primarily resulting from temporary
differences between the book and tax bases of assets and liabilities. We have conducted an
assessment of the likelihood of realization of those deferred tax assets and concluded that a $33
million valuation allowance is needed to reserve the amount of the deferred tax assets that may not
be realized due to the expiration of state credit carryovers. In reaching our conclusion, we
evaluated certain relevant criteria including the existence of deferred tax liabilities that can be
used to absorb deferred tax assets, the taxable income in prior carryback years that can be used to
absorb net operating losses and taxable income in future years. Our judgments regarding future
profitability may change due to future market conditions, changes in U.S. or international tax laws
and other factors. These changes, if any, may require material adjustments to these deferred tax
assets, resulting in a reduction in net income or an increase in net loss in the period such
determinations are made.
In addition, we have provided for potential liabilities due in various jurisdictions. Judgment is
required in determining our worldwide income tax expense provision. In the ordinary course of
global business, there are many transactions and calculations where the ultimate tax outcome is
uncertain. Some of these uncertainties arise as a consequence of cost reimbursement arrangements
among related entities. Although we believe our estimates are reasonable, no assurance can be given
that the final tax outcome of these matters will not be different than that which is reflected in
our historical income tax provisions and accruals. Such differences could have a material impact on
our income tax provision and operating results in the period such determinations are made.
23
Contingencies
From time to time, we receive notices that our products or manufacturing processes may be
infringing the patent or intellectual property rights of others. We periodically assess each matter
to determine if a contingent liability should be recorded in accordance with Statement of Financial
Accounting Standards No. 5, or FAS 5, Accounting for Contingencies. In making this determination,
we may, depending on the nature of the matter, consult with internal and external legal counsel and
technical experts. Based on the information we obtain, combined with our judgment regarding all the
facts and circumstances of each matter, we determine whether it is probable that a contingent loss
may be incurred and whether the amount of such loss can be reasonably estimated. Should a loss be
probable and reasonably capable of being estimated, we record a contingent loss in accordance with
FAS 5. In determining the amount of a contingent loss, we consider advice received from experts in
the specific matter, current status of legal proceedings, settlement negotiations that may be
ongoing, prior case history and other factors. Should the judgments and estimates made by us be
incorrect, we may need to record additional contingent losses that could materially adversely
impact our results of operations. See Note 11 to our Consolidated Financial Statements contained in
Item 1 of this Quarterly Report on Form 10-Q.
24
Factors That May Affect Future Results
Our future operating results are difficult to predict and may materially fluctuate.
Our future operating results are difficult to predict and may be materially affected by a number of
factors, including the timing of new product announcements or introductions by us or our
competitors, competitive pricing pressures, fluctuations in manufacturing yields, adequate
availability of wafers and manufacturing capacity, the risk that our backlog could decline
significantly, our ability to hire, retain and motivate adequate numbers of engineers and other
qualified employees to meet the demands of our customers, changes in product mix, and the effect of
adverse changes in economic conditions in the United States and international markets. In addition,
the semiconductor market has historically been cyclical and subject to significant economic
downturns. Our business is subject to rapid technological changes and there can be no assurance,
depending on the mix of future business, that products stocked in inventory will not be rendered
obsolete before we ship them. As a result of these and other factors, there can be no assurance
that we will not experience material fluctuations in future operating results on a quarterly or
annual basis.
Long-term contracts are not typical for us and reductions, cancelations or delays in orders for our
products could adversely affect our operating results.
In certain markets where end-user demand may be particularly volatile and difficult to predict,
some customers place orders that require us to manufacture product and have it available for
shipment, even though the customer is unwilling to make a binding commitment to purchase all, or
even any, of the product. At any given time, this situation could affect a portion of our backlog.
As a result, we are subject to the risk of cancelation of orders leading to a sharp fall-off of
sales and backlog. Further, those orders may be for products that meet the customers unique
requirements so that those canceled orders would, in addition, result in an inventory of unsaleable
products, resulting in potential inventory write-offs. As a result of lengthy manufacturing cycles
for certain of the products subject to these uncertainties, the amount of unsaleable product could
be substantial. Reductions, cancelations or delays in orders for our products could adversely
affect our operating results.
Our future success depends upon our ability to develop and market new products and enter new
markets.
Our success significantly depends on our continued ability to develop and market new products.
There can be no assurance that we will be able to develop and introduce new products in a timely
manner or that new products, if developed, will achieve market acceptance. In addition, our growth
is dependent on our continued ability to penetrate new markets where we have limited experience and
competition is intense. There can be no assurance that the markets we serve will grow in the
future, that our existing and new products will meet the requirements of these markets, that our
products will achieve customer acceptance in these markets, that competitors will not force prices
to an unacceptably low level or take market share from us, or that we can achieve or maintain
profits in these markets. Furthermore, a decline in demand in one or several of our end-user
markets could have a material adverse effect on the demand for our products and our results of
operations. Also, some of our customers in these markets are less established, which could subject
us to increased credit risk.
We may not be able to compete successfully in the semiconductor industry in the future.
Many other companies offer products that compete with our products. Some have greater financial,
manufacturing, technical and marketing resources than we have. Additionally, some formerly
independent competitors have been purchased by larger companies. Our competitors also include
emerging companies selling specialized products to markets we serve. There can be no assurance
that we will be able to compete successfully in the future against existing or new competitors, or
that our operating results will not be adversely affected by increased price competition.
We rely on third-party subcontractors and manufacturers for some industry-standard wafers and
assembly/test services, and therefore cannot control their availability or conditions of supply.
We rely, and plan to continue to rely, on assembly and test subcontractors and on third-party wafer
fabricators to supply most of our wafers that can be manufactured using industry-standard submicron
processes. This reliance involves several risks, including reduced control over delivery schedules,
manufacturing yields and costs. Additionally, we utilize third-party wafer fabricators as
sole-source suppliers, primarily Taiwan Semiconductor Manufacturing Company. These suppliers
manufacture components in accordance with our proprietary designs and specifications. We have no
written supply agreements with these sole-source suppliers and purchase our custom components
through individual purchase orders. If these sole-source suppliers
25
are unable or unwilling to manufacture and deliver sufficient quantities of components to us, on
the time schedule and of the quality that we require, we may be forced to seek to engage additional
or replacement suppliers, which could result in additional expenses and delays in product
development or shipment of product to our customers.
We may not be able to satisfy increasing demand for our products, and increased production may lead
to overcapacity and lower prices.
The cyclical nature of the semiconductor industry has resulted in sustained and short-term periods
when demand for our products has increased or decreased rapidly. During these periods of rapid
increases in demand, our available capacity may not be sufficient to satisfy the available demand.
We, and the semiconductor industry generally, expand production facilities and access to
third-party foundries in response to these periods of increased demand. These capacity expansions
by us and other semiconductor manufacturers could lead to overcapacity in our target markets, which
could lead to price erosion that would adversely impact our operating results.
Our revenue may not increase enough to offset the expense of additional capacity.
We, and the semiconductor industry generally, expand production facilities and access to
third-party foundries in response to periods of increased demand which can cause operating expenses
to increase. Should customer demand fail to increase or should the semiconductor industry enter a
period of reduced customer demand, our financial position and results of operations could be
adversely impacted as a result of underutilization of capacity or asset impairment charges.
We may be unable to adequately protect our proprietary rights, which may limit our ability to
compete effectively.
We rely primarily upon know-how, rather than on patents, to develop and maintain our competitive
position. There can be no assurance that others will not develop or patent similar technology or
reverse engineer our products or that the confidentiality agreements upon which we rely will be
adequate to protect our interests. Other companies have obtained patents covering a variety of
semiconductor designs and processes, and we might be required to obtain licenses under some of
these patents or be precluded from making and selling the infringing products, if such patents are
found to be valid. There can be no assurance that we would be able to obtain licenses, if required,
upon commercially reasonable terms, or at all. Moreover, the laws of foreign countries in which we
design, manufacture and market our products may afford little or no effective protection of our
proprietary technology.
We are involved in frequent litigation regarding intellectual property rights, which could be
costly to defend and could require us to redesign products or pay significant royalties.
There can be no assurance that any patent will issue on pending applications or that any patent
issued will provide substantive protection for the technology or product covered by it. We believe
that patent and mask set protection is of less significance in our business than experience,
innovation and management skill. There also can be no assurance that others will not develop or
patent similar technology, or reverse engineer our products, or that our confidentiality agreements
with employees, consultants, silicon foundries and other suppliers and vendors will be adequate to
protect our interests.
The semiconductor industry is characterized by frequent claims and litigation involving patent and
other intellectual property rights, including claims arising under our contractual indemnification
of our customers. We have received from time to time, and may receive in the future, claims from
third parties asserting that our products or processes infringe their patents or other intellectual
property rights. In the event a third party makes a valid intellectual property claim against us
and a license is not available to us on commercially reasonable terms, or at all, we could be
forced either to redesign or to stop production of products incorporating that intellectual
property, and our operating results could be materially and adversely affected. Litigation may be
necessary to enforce our patents or other of our intellectual property rights or to defend us
against claims of infringement, and this litigation could be costly and divert the attention of our
key personnel. See Note 11 in the Notes to our Consolidated Financial Statements contained in Item
1 of this Quarterly Report on Form 10-Q for information concerning pending litigation that involves
us. An adverse outcome in this or other litigation could have a material adverse effect on our
consolidated financial position or on our consolidated results of operations or cash flows in the
period in which the litigation is resolved.
26
If we do not retain our key personnel, our ability to execute our business strategy will be
limited.
Our success depends to a significant extent upon the continued service of our executive officers
and key management and technical personnel, particularly our experienced engineers, and on our
ability to continue to attract, retain, and motivate qualified personnel. The competition for these
employees is intense. The loss of the services of one or more of our key personnel could have a
material adverse effect on our operating results. In addition, there could be a material adverse
effect on us should the turnover rates for engineers and other key personnel increase significantly
or if we are unable to continue to attract qualified personnel. We do not maintain any key person
life insurance policy on any of our officers or employees.
We rely on manufacturing capacity located in geologically unstable areas, which could affect the
availability of supplies and services.
We, and many companies in the semiconductor industry, rely on internal manufacturing capacity
located in California as well as wafer fabrication foundries in Taiwan and other sub-contractors in
geologically unstable locations around the world. This reliance involves risks associated with the
impact of earthquakes on us and the semiconductor industry, including temporary loss of capacity,
availability and cost of key raw materials and equipment and availability of key services including
transport. Any prolonged inability to utilize one of our manufacturing facilities as a result of
fire, natural disaster, unavailability of electric power or otherwise, would have a material
adverse effect on our results of operations and financial condition.
We are exposed to economic, political and other risks through our significant worldwide operations.
During the first nine months of fiscal 2005, approximately 75% of our revenues were derived from
customers in international markets. Although we engage in hedging transactions to reduce our
exposure to currency exchange rate fluctuations, there can be no assurance that our competitive
position will not be adversely affected by changes in the exchange rate of the United States dollar
against other currencies. Potential interest rate increases, particularly in the United States and
China, as well as high energy costs could have an adverse impact on industrial and consumer
spending patterns and could adversely impact demand for our products. We have manufacturing
facilities outside the United States in Ireland and the Philippines. In addition to being exposed
to the ongoing economic cycles in the semiconductor industry, we are also subject to the economic
and political risks inherent in international operations and their impact on the United States
economy in general, including the risks associated with ongoing uncertainties and political and
economic instability in many countries around the world as well as the economic disruption from
acts of terrorism, and the response to them by the United States and its allies. These risks
include air transportation disruptions, expropriation, currency controls, currency exchange rate
movement, and additional costs related to tax, tariff and freight rate increases.
Our future operating results are dependent on the performance of independent distributors and sales
representatives.
A significant portion of our sales are through independent distributors that are not under our
control. These independent distributors generally represent product lines offered by several
companies and thus could reduce their sales efforts applied to our products or terminate their
representation of us. We generally do not require letters of credit from our distributors and are
not protected against accounts receivable default or bankruptcy by these distributors. Our
inability to collect open accounts receivable could adversely affect our results of operations.
Termination of a significant distributor, whether at our initiative or the distributors
initiative, could disrupt our current business. If we are unable to find suitable replacements in
the event of terminations by significant distributors or sales representatives, our operating
results could be adversely affected.
Our manufacturing processes are highly complex and may be interrupted.
We have manufacturing processes that utilize a substantial amount of technology as the fabrication
of integrated circuits is a highly complex and precise process. Minute impurities, contaminants in
the manufacturing environment, difficulties in the fabrication process, defects in the masks used
in the wafer manufacturing process, manufacturing equipment failures, wafer breakage or other
factors can cause a substantial percentage of wafers to be rejected or numerous dice on each wafer
to be nonfunctional. While we have significant expertise in semiconductor manufacturing, it is
possible that some processes could become unstable. This instability could result in manufacturing
delays and product shortages, which could have a material adverse effect on our financial position
or results of operations.
27
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the information provided under ITEM 7A. Qualitative and
Quantitative Disclosures about Market Risk set forth on pages 29-30 of our Annual Report on Form
10-K for the year ended October 30, 2004.
ITEM 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. Our management, with the participation of
our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of Analogs
disclosure controls and procedures as of July 30, 2005. The term disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and
other procedures of a company that are designed to ensure that information required to be disclosed
by a company in the reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SECs rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports that it files or
submits under the Exchange Act is accumulated and communicated to the companys management,
including its principal executive and principal financial officers, as appropriate to allow timely
decisions regarding required disclosure. Management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on the evaluation of our disclosure
controls and procedures as of July 30, 2005, our Chief Executive Officer and Chief Financial
Officer concluded that, as of such date, our disclosure controls and procedures were effective at
the reasonable assurance level.
(b) Changes in Internal Controls. No change in our internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) occurred during the
third quarter ended July 30, 2005 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
28
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
On
June 14, 2005, Biax Corporation filed its first amended complaint for patent infringement in the
United States District Court for the Eastern District of Texas against Analog Devices, Inc. and
Intel Corporation, alleging that we infringed three patents owned by Biax relating to parallel
processors. Prior to the filing of the first amended complaint, we were unaware of Biax or this
action. The first amended complaint seeks injunctive relief, unspecified damages, as well as its
costs, expenses and fees. On August 3, 2005, we filed an answer and counterclaimed against Biax.
In the counterclaim, we seek rulings that the patents are not infringed, are invalid and are
unenforceable. The case has not yet entered the discovery phase. We intend to vigorously defend
against these allegations. We are unable at this time to predict the outcome of this litigation.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
During the quarter ended July 30, 2005, we did not repurchase any shares of our common stock or any
other equity securities that are registered by us pursuant to section 12 of the Exchange Act.
Since the start of our share repurchase program, publicly announced on August 12, 2004 and amended
on May 11, 2005, we have repurchased shares for an aggregate purchase price of $462,780,187
pursuant to this plan. We are currently authorized to repurchase shares for an additional
$537,219,813 under this plan. Unless earlier terminated by resolution of our Board of Directors,
the repurchase program will expire when we have repurchased all shares authorized under the
program.
ITEM 6. Exhibits
(a) |
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Exhibits |
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The exhibits listed in the Exhibit Index immediately preceding the exhibits are filed as
part of this Quarterly Report on Form 10-Q and such Exhibit Index is incorporated herein by
reference. |
Items 3, 4 and 5 of PART II are not applicable and have been omitted.
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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ANALOG DEVICES, INC. |
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Date:
August 17, 2005
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By:
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/s/ Jerald G. Fishman |
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Jerald G. Fishman |
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President and |
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Chief Executive Officer |
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(Principal Executive Officer) |
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Date:
August 17, 2005
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By:
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/s/ Joseph E. McDonough |
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Joseph E. McDonough |
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Vice President-Finance |
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and Chief Financial Officer |
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(Principal Financial and |
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Accounting Officer) |
30
Exhibit Index
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Exhibit |
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No. |
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Description |
31.1
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Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange
Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief
Executive Officer). |
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31.2
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Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange
Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief
Financial Officer). |
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32.1
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Certification Pursuant to 18 U.S.C. Section 1350 (Chief Executive Officer). |
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32.2
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Certification Pursuant to 18 U.S.C. Section 1350 (Chief Financial Officer). |
31
Exhibit 31.1
CERTIFICATION
I, Jerald G. Fishman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Analog
Devices, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this report is being prepared;
b) [Not Applicable];
c) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation;
and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in
the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over financial
reporting.
Dated: August 17, 2005 /s/ Jerald G. Fishman
-------------------------------------
Jerald G. Fishman
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION
I, Joseph E. McDonough, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Analog
Devices, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this report is being prepared;
b) [Not Applicable]
c) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation;
and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in
the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over financial
reporting.
Dated: August 17, 2005 /s/ Joseph E. McDonough
--------------------------------------------
Joseph E. McDonough
Vice President-Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Analog Devices, Inc.
(the "Company") for the period ended July 30, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), the undersigned,
Jerald G. Fishman, Chief Executive Officer of the Company, hereby certifies,
pursuant to 18 U.S.C. Section 1350, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated: August 17, 2005 /s/ Jerald G. Fishman
-----------------------
Jerald G. Fishman
Chief Executive Officer
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Analog Devices, Inc.
(the "Company") for the period ended July 30, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), the undersigned,
Joseph E. McDonough, Chief Financial Officer of the Company, hereby certifies,
pursuant to 18 U.S.C. Section 1350, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated: August 17, 2005 /s/ Joseph E. McDonough
-------------------------
Joseph E. McDonough
Chief Financial Officer